Hedge Ratio

Proportion of position risk that is hedged

What is Hedge Ratio?

Hedge Ratio The proportion of a position that is hedged, or the number of hedging instruments needed to offset the risk of a position. In options, delta serves as a natural hedge ratio — an option with 0.50 delta requires 50 shares to delta-hedge one contract. The hedge ratio changes as delta changes, requiring dynamic rebalancing.

Complete Definition

The proportion of a position that is hedged, or the number of hedging instruments needed to offset the risk of a position. In options, delta serves as a natural hedge ratio — an option with 0.50 delta requires 50 shares to delta-hedge one contract. The hedge ratio changes as delta changes, requiring dynamic rebalancing.